Internet Radio agreement: Good enough for now

Hollywood and Silicon Valley have reached an agreement on Internet radio - an experimental payment structure that is far from perfect but much better than the alternative rate system that threatened to put Web-based streaming sites out of business.

The agreement creates a tiered-system for the radio sites, based on their sizes and revenue. It will effective 2006 through 2015 for the larger sites and expires in 2014 for the smaller ones. In exchange, webcasters will provide more detail about the songs they play and the audience sizes to SoundExchange, the non-profit agency that manages royalties on behalf of the music industry.

In its news release (Techmeme), SoundExchange noted on several occasions that this structure is experimental. Said Executive Director John Simson:

Time will tell if revenue sharing is the right move for both the recording community and webcasters but we’re willing to take the risk in the hope that artists, rights holders and webcasters can all benefit.

The two sides have been battling for years over rates for online radio streams. But even agreements reached earlier this year between SoundExchange and the National Association of Broadcasters, Corporation for Public Broadcasting and others weren't well received. Simson also said:

We believe the rates the CRB set were appropriate and fair. However, by incorporating an experimental approach whereby artists and copyright holders share in the growth of pureplay services, it gives certain pureplay webcasters the opportunity to flesh out various business models and the creators of music the opportunity to share in the success their recordings generate.

That sort of willingness to negotiate and experiment over something like royalty rates is huge. For a long time, the music industry has had its head buried in the sand when it comes to the influence of the Internet on their business models. The Recording Industry Association of America, for example, has taken a public relations beating over its handling of music download services and piracy. Mostly, the RIAA sued.

Related coverage: RIAA's $1.92 million victory: more about message, less about money

The details of the agreement are laid out by SoundExchange, with the important parts noted below:

This agreement accommodates the specific characteristics of a distinct class of webcasters whose predominant form of business and revenue generation is the streaming of sound recordings under a government license -- hence the term “pureplay.” For these webcasters, the agreement provides for three rate classes, under which webcasters can opt for an alternative rate structure.

The three rate classes are large pureplay webcasters, small pureplay webcasters (defined as those earning $1.25 million or less in total revenues with a cap on music streamed) and pureplay webcasters that provide bundled, syndicated or subscription services. SoundExchange views these newly negotiated rates as an experimental structure intended to provide an innovative approach for a particular genre of webcasters and does not consider these terms indicative of fair market rates. “Time will tell if revenue sharing is the right move for both the recording community and webcasters,” Simson commented, “but we’re willing to take the risk in the hope that artists, rights holders and webcasters can all benefit.”

Larger pureplay services will pay the greater of either a per performance rate or 25 percent of total revenue, and will agree to provide more comprehensive reporting about the sound recordings used than regulations currently require. Through 2014, small pureplay webcasters will have the option of paying the greater of a percentage of revenue or a percentage of expenses, and in certain circumstances have less stringent play list reporting requirements in return for payment of an additional “proxy fee.” Bundled, syndicated or subscription services will pay per-performance fees that are the same as those contained in an agreement concluded earlier in the year by SoundExchange with the National Association of Broadcasters. All pureplay webcasters would pay an annual minimum fee of $25,000 that can then be applied to their royalties owed.